Matrix Asset Management Inc.
TSX : MTA

Matrix Asset Management Inc.

May 16, 2013 00:43 ET

Matrix Asset Management Inc. Reports First Quarter Results

VANCOUVER, BRITISH COLUMBIA--(Marketwired - May 15, 2013) - Matrix Asset Management Inc. (the "Company" or "Matrix") (TSX:MTA) reported today its financial and operating results for the first quarter ended March 31, 2013.

A conference call to discuss the first quarter results is scheduled for May 17, 2013 at 9:00 a.m. Eastern Time. The dial-in details are available at: https://cc.callinfo.com/r/1c8ks49vqiucr

"Management's continued cost-cutting measures have reduced total expenses by almost 12% compared to the same period last year. We will continue to review options for reducing expenses. Improving the balance sheet remains a priority for Matrix and we are considering potential options to increase working capital. On the institutional side, SEAMARK's investment performance improved during the last year and almost all their mandates outperformed industry benchmarks," said David Levi, President and CEO of Matrix.

Selected First Quarter 2013 Highlights

  • At the end of the first quarter, total AUM was $1.1 billion, compared to $1.1 billion as at December 31, 2012 and $1.6 billion as at March 31, 2012.

  • Total revenue for the first quarter was $5.3 million compared to $6.9 million during the same period last year.

  • Expenses for the first quarter was $6.7 million compared to $7.5 million during the same period last year.

  • EBITDA for the first quarter was $(0.4) million compared to $0.5 million during the same period last year.

  • Free cash flow for the first quarter was $(0.8) million compared to $0.3 million during the same period last year.

  • Working capital deficit has increased over the quarter by $1 million to $(7.0) million, and working capital deficit, including contingent assets that management believes will be realized during the current year, increased by $1 million to $(5.3) million. See "Liquidity and Capital Resources".

This release should be read in conjunction with Matrix's unaudited interim financial statements and Management Discussion & Analysis ("MD&A") for the first quarter ended March 31, 2013, which are available on the SEDAR website at www.sedar.com.

Subsequent Events:

  • The Company continues to pursue the previously announced business combination with Marquest Asset Management Inc. ("Marquest"). The parties are now aiming to complete the business combination by the end of June 2013. Marquest has agreed to advance a further $2 million of loan capital to the Company in advance of closing. This amount, together with the previously announced advance of $1 million, would be repayable on the earliest of (i) October 15, 2013, (ii) the closing of the business combination and (iii) the closing of any other sale of all or substantially all of the assets of Matrix or a change of control of Matrix. The advances accrue interest at a rate of 8.0% per annum before maturity and 14% after maturity and will be secured by a charge over all of the assets of Matrix. There can be no assurance that the business combination will be completed on the terms proposed or at all.

  • The Company's working capital deficit has caused levels of working capital in the Company's two registered subsidiaries to fall below regulatory working capital requirements. The Company is taking immediate steps to ensure these subsidiaries have and maintain working capital in sufficient amounts to comply with such requirements, including through the $2 million loan expected to be advanced to the Company in the near term in connection with the proposed business combination with Marquest. There can be no assurance that these subsidiaries will restore and maintain compliance with working capital requirements to the satisfaction of regulatory authorities and a failure to do so would have a material adverse effect on the Company's ability to operate and its financial position and future operating results. See "Liquidity and Capital Resources".

On May 15, 2013, Matrix refiled its fourth quarter 2012 MD&A to address comments received from the Nova Scotia Securities Commission on the previously filed MD&A for the fourth quarter 2012. The updated documents are available on the SEDAR website at www.sedar.com.

Corporate Overview

Matrix is a diversified asset and wealth management company. The Company manages approximately $1.1 billion in assets through three operating divisions:

  • Institutional asset management, operated through SEAMARK, which offers portfolio management to institutional and high net worth private clients.

  • Fund management, operated through Matrix Funds Management (a division of GrowthWorks Capital Ltd.), which manages the Matrix family of mutual funds and specialty funds (formerly Mavrix Funds and SEAMARK Mutual Funds) and distributed through investment dealers and financial planners across Canada.

  • Venture capital, operated through GrowthWorks Ltd., which manages funds in the venture capital sector.

This diversified set of operations delivers multiple sources of revenue across several asset and client groups. The Company's mission is to provide a diverse array of investment choices and the best possible investment management service to Canadian investors and institutions. With four offices located in major and regional centres across Canada, Matrix has a national investment presence.

Summary of First Quarter ended March 31, 2013 Financial Results - Unaudited

The following table sets out selected consolidated financial information about Matrix for the three months ended March 31, 2013 and 2012.

The summary of financial results identifies expense items which are considered non-recurring. Management believes that it is important to identify non-recurring items in order to fully understand Matrix's operating results. The intent of identifying these non-recurring items is to provide greater transparency as to what the core or run-rate capacity of the business may be. In specific circumstances, management considers these matters to be material, and therefore important to present as supplemental information. Further information regarding non-recurring expenses is contained in Table 3 of Matrix's first quarter 2013 MD&A.

For the three
months ended
March 31, 2013
(in $ thousands)
For the three
months ended
March 31, 2012
(in $ thousands)
Revenue
Management and administration fees $ 4,720 $ 5,879
Additional administration fees 270 343
Incentive participation dividends - 584
Interest income 180 9
Other income 107 92
Total Revenue 5,277 6,907
Expenses
Selling, general and administrative 5,029 5,727
Share-based compensation 57 144
Servicing commissions 565 618
Amortization - property and equipment 73 82
Amortization - deferred sales commissions 436 491
Amortization - asset management contracts 78 192
Interest 341 187
6,579 7,441
Loss before merger, acquisition and other special project costs and income taxes (1,302 ) (534 )
Merger, acquisition and other special project costs 73 82
Loss before taxes (1,375 ) (616 )
Income tax recovery (95 ) (81 )
Net loss $ (1,280 ) $ (535 )
Basic income (loss) per share (in $) (0.03 ) (0.01 )
Diluted income (loss) per share (in $) (0.03 ) (0.01 )
NON-GAAP MEASURES
EBITDA(1) (390 ) 480
Total non-recurring expenses(2) 73 82
Recurring EBITDA(3) (317 ) 562
Free Cash Flow (5) (792 ) 345
Loss before taxes (1,375 ) (616 )
Total non-recurring expenses(2) 73 82
Recurring loss before taxes(4) (1,302 ) (534 )
Dividends declared and paid - 17
As at
March 31, 2013
(in $ thousands)
As at
March 31, 2012
(in $ thousands)
As at
December 31, 2012
(in $ thousands)
Cash, cash equivalents and investments $ 1,113 2,162 $ 2,353
Total assets 23,743 28,593 25,439
Total long-term liabilities 8,453 10,263 9,686
Total assets under management(6) 1,100,000 1,600,000 1,100,000
Notes:
(1) EBITDA (defined by Matrix as earnings before interest, taxes, depreciation and amortization and other non-cash items) is a measure used by many investors to compare issuers on the basis of their ability to generate cash from operations. Management believes EBITDA is a useful supplemental measure of operating performance as it provides an indication as to cash available for working capital needs, capital expenditures and dividends.
(2) Non-recurring items are described in Matrix's Management's Discussion & Analysis posted on SEDAR.
(3) Management believes "recurring EBITDA" is a useful supplemental measure of operating performance because it provides readers with greater insight into what the core or run-rate EBITDA generating capacity of the business may be by adjusting EBITDA for various non-recurring items. Without presentation of this measure, there can be a lack of transparency of the effect of non-recurring revenues or expenses on EBITDA.
(4) Management believes "recurring income (loss) before taxes" is a useful supplemental measure of operating performance because it provides readers with greater insight into what the core or run-rate income before taxes generating capacity of the business may be by adjusting income before taxes for various non-recurring items. Without presentation of this measure, there can be a lack of transparency of the effect of non-recurring revenues or expenses on income before taxes.
(5) Management believes "Free Cash Flow" (defined by Matrix as EBITDA less interest paid, commissions paid and net taxes (payable/refundable as filed)) is a useful supplemental measure of available cash generated from the business' operations for working capital needs, capital expenditures and dividends.
(6) Assets under management or "AUM" means the fair value of the net assets of the funds and accounts managed by Matrix and its subsidiaries in respect of which fees are earned.

The unaudited interim financial statements of the Company for first quarter 2013 have been prepared in accordance with the International Accounting Standard 34 - Interim Financial Reporting as issued by the International Accounting Standards Board and are the responsibility of the Company's management. The Company's independent auditor has not performed a review of these financial statements.

Liquidity and Capital Resources

As at March 31, 2013, Matrix had total assets of $23.7 million, a decrease of $1.7 million from $25.4 million at December 31, 2012. During the first quarter, current assets decreased by $0.4 million while long term assets decreased by $1.3 million. Total liabilities of $23.5 million as at March 31, 2013 decreased by $0.5 million compared to $24.1 million as at December 31, 2012. Current liabilities increased by $0.6 million while long term liabilities decreased by $1.1 million.

The Company requires capital for operating purposes, including funding current and long term liabilities and current and future operations. Subsidiaries of the Company registered under securities laws must also maintain minimum levels of working capital in order to meet regulatory requirements under securities laws. If these minimum working capital requirements are not maintained, these registrations may be revoked if the Company is unable to resolve the deficiency to the satisfaction of regulatory authorities, which would have a material adverse effect on the Company's business.

Matrix's liquidity position and capital resources are dependent on cash flows from operations which in turn are dependent on AUM. Matrix's AUM is subject to a number of risks and uncertainties and has declined significantly since the business combination with SEAMARK was completed. Matrix's working capital position has also deteriorated significantly over the past two years. Failing to meet payment obligations, including in respect of secured indebtedness, or registered subsidiaries failing to maintain compliance with working capital requirements under securities laws would have a material adverse effect on Matrix's financial condition, operating results and ability to carry on business. See "Risk Factors" in the Company's MD&A and Annual Information Form.

As at March 31, 2013, Matrix had a working capital deficiency of $7.0 million, comprised of $8.1 million current assets and $15.1 million in current liabilities. Matrix's retained earnings deficit as at March 31, 2013 was $24.3 million and the net loss for the quarter was $1.3 million. Significant items contributing to the working capital deficit are: (1) $1.3 million of employment related obligations, primarily non-recurring lump sum payments due during the second quarter of 2013; (2) $1.2 million of payments on account of a subordinated debenture due in July 2013, which Matrix aims to re-finance; and (3) internally-financed retail mutual fund commissions paid to earn future management fee revenues and which management aims to re-finance.

The financial statements and MD&A were prepared on a going concern basis, which assumes that Matrix will continue to realize its assets and discharge its liabilities as they become due.

Management's cash flow forecasts indicate that the Company is expected to have resources available to continue to operate as a going concern, however the forecasts are based on a number of assumptions with respect to future cash flows and the Company's ability to re-structure or re-finance significant amounts of debt obligations payable during 2013, including up to $4.0 million of payments to third party lenders and $0.6 million of payments to related parties. There can be no assurance that Matrix will re-structure or re-finance these debt obligations in a manner that will allow Matrix to continue to operate. Uncertainties surrounding these assumptions may cast significant doubt on the ability of Matrix to discharge its liabilities in the normal course of business and continue to operate as a going concern. (See Note 1 "Organization and Continuing Operations" in the condensed interim consolidated financial statements and see Note 9 "Corporate Debt" in the condensed interim consolidated financial statements for a description of terms and security on corporate debt.)

There is material uncertainty surrounding Matrix's ability to generate positive cash flows, to achieve savings from cost reduction programs and the quantum of such savings, to re-pay, re-finance and/or re-structure debt obligations, to collect fund management fees and incentive participation dividends from managed funds with diminished liquidity, the outcome of regulatory filings and reviews, collection of tax refunds and the timing and completion of any future strategic transactions, including possible acquisition or disposition transactions. See "Forward-Looking Statements". If the Company is unable to re-pay or re-finance its debt obligations, the obligations and associated security may be enforced, which would have a material adverse effect on the Company's business, financial position and operating results and the Company's ability to continue to operate. The auditor's report in respect of Matrix's consolidated financial statements for the year ended December 31, 2012 was unqualified, however did contain and Emphasis of Matter notation with respect to Matrix's working capital deficit as at December 31, 2012, net loss for the year and Matrix's ability to continue to operate as a going concern.

Matrix has not recorded contingent current assets of $1.7 million on its statement of financial position, including incentive participation payments of $0.8 million related to divestments completed by managed retail venture capital funds during 2012. These payments have been confirmed as earned in 2012 but are paid in the form of dividends which have not yet been declared by the relevant funds' boards of directors. Further, potential tax refunds of $1.0 million were not recorded. These tax refunds consist of taxes paid in a prior year by a subsidiary and are dependent upon filing and processing of tax returns in 2013. During 2012 similar refunds of $1.0 million were received in the third quarter. Matrix's working capital deficit, after deducting these contingent amounts, would be $5.3 million. While management believes these contingent amounts will be realized during the current year, there can be no assurance as to whether or when contingent amounts will be realized.

It is not possible to predict whether strategic options pursued by Matrix will result in sufficient improvements to Matrix's financial condition to allow Matrix to continue as a going concern. If the going concern assumption ceases to be appropriate, adjustments will be necessary to the carrying amounts and/or classification of Matrix's assets and liabilities. Further, a comprehensive restructuring plan could materially change the carrying amounts and classifications reported in the consolidated financial statements. The condensed interim consolidated interim financial statements do not reflect any such adjustments and do not take into account events or conditions that arose subsequent to March 31, 2013.

Matrix's first quarter 2013 financial statements and MD&A available on the SEDAR website at www.sedar.com.

About Matrix (www.matrixasset.ca)

Matrix Asset Management Inc. (TSX:MTA) is a diversified asset and wealth management company, with approximately $1.1 billion in assets under management and offices in four cities across Canada. Matrix's mission is to provide a diverse array of investment choices and the best possible investment management service to Canadian investors and institutions. Matrix delivers its services through three main operating subsidiaries serving institutional, high net worth and retail investors.

Forward-Looking Statements

Certain statements in this press release are forward-looking statements based on beliefs, assumptions and expectations of the Company and not on historical fact. Forward-looking statements are provided for the purposes of assisting the reader in understanding the Company's financial position and results of operations and to present information about management's current expectations and plans related to future periods. Readers are cautioned against placing undue reliance on forward-looking statements and that such statements may not be appropriate for other purposes. These statements may include, without limitation, statements regarding Matrix's ability to continue to operate as a going concern and meet minimum working capital and other regulatory requirements, future operations, business, financial condition, AUM, financial results, expense reductions, tax refunds, dividends and dividend policies, proposed financing and other transactions, plans for the re-payment, re-financing and/or re-structuring of Matrix's financial obligations, managed venture capital fund divestments, targeted acquisitions and other transactions, expected benefits from the proposed business combination with Marquest, prospects, opportunities, goals, strategies, accounting policies and estimates and outlook of the Company for the current fiscal year and subsequent periods. Forward-looking statements include statements that are predictive in nature or depend upon or refer to future events or conditions.

Forward-looking statements are based upon beliefs and assumptions of management that were applied in drawing a conclusion or making an estimate, forecast or projection as reflected in the forward-looking statements, including the perception of historical trends and current conditions and beliefs and assumptions with respect to levels of AUM and related assumptions as to levels of portfolio returns and managed fund sales and redemptions, beliefs and assumptions concerning prevailing and future economic and market conditions and the impact of such conditions and other factors on Matrix's AUM and managed portfolio performance, the continuation of portfolio and fund management and advisory engagements, the extent and effectiveness of cost-saving measures and the impact of such measures and other factors on earnings, the outcome of pending and future tax filings, the outcome of litigation, the status of pending transactions and proposed transactions and the expected benefits from and impact of transactions on Matrix's future operations, the ability of Matrix to re-pay, re-finance or re-structure financial obligations and maintain compliance with related contractual covenants, tax rates, minimum working capital and other regulatory requirements and other laws, the ability of managed venture capital funds to generate liquidity, pay management fees and IPA dividends when due and satisfy secured payment obligations under financing arrangements, performance of managed venture capital investments relative to carrying values and performance fee return thresholds, the collection of trade receivables and the absence of extraordinary or one-time expenses not currently known to management.

While management considers these beliefs and assumptions to be reasonable based on information currently available, these statements are subject to numerous risks and uncertainties and no assurance can be given that such beliefs and assumptions will prove to be correct. Accordingly, actual results may differ significantly from those expressed or implied by forward-looking statements due to many factors including, but not limited to, risks associated with institutional, mutual fund and venture capital fund management sectors generally, market, economic, political and other risks affecting portfolio performance, interest and foreign exchange rates, levels of managed fund sales and redemptions and in turn Matrix's AUM, risks associated with tax filings and litigation, other risks affecting revenues and earnings, regulatory and other risks associated with fund and asset management activities, completing proposed financings and acquisitions, managed venture capital fund divestments and liquidity levels, risks associated with non-performance of financial obligations, including secured obligations, the risk that new products will not be successful, integration and continuity risks affecting completed acquisitions, changes in consumer demand for the financial products offered by the Company, Matrix's ability to respond to competition and other risks and uncertainties listed under "Risk Factors" in Matrix's Annual Information Form dated March 30, 2013, which is available on SEDAR. Many of these risks are beyond the control of Matrix.

The assumptions and risks noted in this press release are not exhaustive of the factors that may affect any of the Company's business and the forward-looking statements in this press release. Readers should consider these and other risks, uncertainties and potential events carefully and should not place undue reliance on forward-looking statements. Other than as specifically required by law, the Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statements are made, or to reflect new information, future unanticipated events or results or other factors.

Non-IFRS Financial Measures

"EBITDA", "recurring EBITDA", "Free Cash Flow" and "recurring income (loss) before taxes" are not measures recognized under International Financial Reporting Standards ("IFRS"). However, management of Matrix believes that most shareholders, creditors, other stakeholders and investment analysts prefer to have these measures included as reported measures of operating performance, a proxy for cash flow, and to facilitate valuation analysis. These non-IFRS measures do not have any standard meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. Readers are cautioned that these non-IFRS measures are not alternatives to measures determined in accordance with IFRS and should not, on their own, be construed as indicators of performance, cash flows or profitability or measures of liquidity. These non-IFRS measures should only be read in conjunction with the financial statements of Matrix posted on SEDAR. For additional information regarding Matrix's use of non-IFRS measures, including reconciliations of these measures to the nearest IFRS measures, please refer to the "Non-IFRS Financial Measures" and "Non-Recurring Items, EBITDA & Free Cash Flow" sections of its MD&A available on the SEDAR website at www.sedar.com.

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